Britain’s vote to leave the European Union on the 23 June 2016 referendum has brought about a great deal of uncertainty regarding tax, legal, and operational matters for the UK. This uncertainty has now continued for several months, with little detail available regarding what Britain will look like after Article 50 is triggered, likely in Spring 2017. In this, the marine industry is no exception.
Despite some speculation, it is too premature to determine exactly what the consequences of Brexit will be or how it will impact the yachting industry, since much will depend on the precise nature of the new agreements that the UK will forge with the EU. As the situation stands, however, we do believe that Yacht VAT planning certainly does remain possible and indeed necessary post-Brexit, and the new realities as they will materialise in the months ahead will need to be factored into such planning.
A few matters relating to the yachting industry which are quite clear even during this uncertain period are outlined below.
It is advisable for a vessel to have an EU flag when a yacht is considered to be EU VAT paid, or is otherwise in free circulation in the EU, such as in the case of a commercially operated yacht that has been imported into the EU.
Since Post-Brexit a UK flag would be considered a non-EU flag, such yachts would be expected to migrate towards EU flag registries which are considered popular yachting destinations. Malta is likely to be a popular choice, as an English speaking jurisdiction with a very well respected registry.
VAT Paid Status
Another significant concern is for the jurisdictions to enter into a tax treaty which sets out rules to avoid (or not) double taxation. Up to now, Britain has benefited from European VAT harmonisation rules, but will the British VAT continue to be recognized in the rest of the EU?
- One would imagine thatyachts which have been VAT paid in the UK prior to the effective date of Brexit, should be deemed EU VAT paid also post-Brexit, since yacht owners would be subject to double taxation otherwise.
- Although EU legislation will still apply while the British Government negotiates the withdrawal agreement with the EU, there is no guarantee that the EU will agree to such terms. In the instance that the EU and UK do not come to such an agreement, and a yacht has been VAT paid in the UK, the VAT paid would technically no longer qualify as EU VAT, hence making the yacht owner liable to pay EU VAT once again upon importation of the yacht into EU waters.
- Post-Brexit, UK VAT paid would certainly not count as EU VAT paid. Should owners therefore intend on utilising their yachts in EU waters and VAT is to be paid, it would be highly opportune to consider using an EU jurisdiction that is friendly towards, and attractive for, yachting
In light of this and given the current uncertainty surrounding the future EU VAT status of UK VAT paid yachts, it is suggested that Post-Brexit, all new yacht structures requiring EU VAT paid status should be structured through the EU rather than the UK. This eliminates the uncertainty and ensures a fiscally attractive result.
UK owners – privately operated yachts
A consequence of Brexit in this respect is that such owners could become eligible to sail into EU waters under the Temporary Importation regime. This allows purely private cruising in EU waters for a period of 18 months at a time, without the requirement for a vessel to be EU VAT paid.
In such cases, captains and yacht managers will need to be diligent in monitoring the period of time spent in any one go within EU waters in order to ensure that the yacht does not stray beyond the maximum 18 month period, as this would otherwise result in a liability to pay EU import VAT at the full standard rate of the country concerned. The 18 month period could be re-set continuously simply by the yacht sailing outside EU territory (such as to the UK) and returning into EU waters for a fresh term of up to 18 months.
Having assessed the implications of Brexit regarding VAT planning possibilities, we have come to a conclusion that once the roadmap towards Brexit becomes clearer, it is likely that several existing yacht ownership set-ups will need to be restructured, resulting in new VAT planning challenges as well as opportunities. Having said this, there are robust solutions that can be implemented as and when necessary ahead of the UK’s expected withdrawal from the EU, despite the current uncertainty.
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